US Dollar Seen as Weak, Declining Further

The House of Representatives Financial Services Committee Tuesday heard from economists who agreed the weakening dollar is likely to decline further. VOA's Barry Wood reports.

Committee member Ron Paul, a conservative Republican, called attention to the dollar's weakness. The U.S. currency, he said, has this year lost nine percent against the euro and even more against some other currencies.

"It's lost more than 10 percent against the British pound," he said. "And lo and behold, the Indian rupee - if you had been holding Indian rupees - you would have made 13 percent."

Paul asked the panel of three economists whether Americans should be worried by the dollar's decline. Alan Meltzer, a professor at Carnegie Mellon University in Pittsburgh, said the dollar is weak because for America's rising external deficit.

"The long-term problem is a serious one," he said. "If you ask, over the long-term what is likely to happen to the dollar, you'd have to believe that over the long-term the dollar is going to decline in value. Why is that? Basically, because we invest more [as a nation] than we save. We save too little."

Benjamin Friedman from Harvard said no other country could get away with having such large current account (trade) deficits. It is, he said, irresponsible for the United States to incur an external deficit equal to 6.5 percent of its national income.

But none of the economists saw a danger in the huge accumulation of dollars by China and Japan. Neither country, they said, would gain by selling their dollar holdings in order to devaluate the currency further.

Jamie Galbraith, the son of the late Nobel-winning economist John Kenneth Galbraith, is a professor at the University of Texas.

"The problem, as I see it, is that the system - like all monetary systems - is inherently precarious," he said. "It is subject to a shock, a crisis, a panic, a collapse down the road."

None of the economists would predict how much further the dollar will drop. But they said a further decline could help by lowering the prices of U.S. exports, thereby boosting exports and reducing the size of the external deficit.